What volatility and maximum drawdown mean, how to read them, why losses need bigger gains to recover, and why thin UZSE trading can make risk look smaller.
In short
Volatility measures how widely returns swing around their average; drawdown measures the fall from a peak to a later low.
Look at the time to recover as well as the size of the fall.
Losses and gains are not symmetric: after a fall by half you need the price to double just to get back.
On UZSE, shares that trade rarely can look calmer than they are, because a missing trade shows no change.
Match risk to your horizon: money for next year should not sit where it can fall far and recover slowly.
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What asset allocation is, how goals, time horizon and risk capacity shape your mix of cash, fixed income and shares, and what it means on the Uzbek market.
"Risk" is one of the most used words in investing and one of the least defined. For most people it simply means the chance of losing money. Professionals use more precise measures, and two of them are easy to understand without any statistics course: volatility and drawdown. This guide explains both, shows the arithmetic of losses and recoveries, and explains why the numbers can mislead on a market where many shares trade rarely.
Volatility: how much a price moves around
Volatility measures how widely an investment's returns swing around their average. A deposit that pays the same rate every month has almost no volatility. A share whose price rises 8% one month and falls 6% the next has a lot.
The usual measure is the standard deviation of returns. In plain words: take the monthly returns over a period, find their average, and measure how far a typical month lands from that average. A larger number means wider swings.
An illustrative comparison with round numbers. Two investments both average 1% a month over a year:
Investment A returns between 0% and 2% every month.
Investment B returns +9% in some months and -7% in others.
The average is the same, but living with B feels very different. In a month when you need the money, B may be well below where it started. Volatility captures that difference.
Volatility is usually quoted on a yearly basis. A rough conversion from monthly to yearly multiplies the monthly figure by the square root of 12, about 3.5. So a monthly standard deviation of 4% corresponds to about 14% a year.
What volatility does not tell you
Volatility treats rises and falls the same way, though investors only mind the falls. It also assumes that the past pattern of swings is a fair guide to the future. A company that has been calm for years can still collapse after one piece of bad news. Treat volatility as a description of the past, not a promise.
Drawdown: how far you fell from the top
A drawdown is the fall from a previous peak to a later low, measured in percent. If your portfolio reached 10,000,000 soʻm, then dropped to 7,000,000 soʻm before recovering, that was a 30% drawdown.
The maximum drawdown is the largest such fall over a period. It answers a question most investors understand at once: what is the worst loss someone would have suffered if they had bought at the worst moment and sold at the worst moment in that period?
Drawdown has a second part that matters as much: time to recover. A 30% fall that recovers in six months is a very different experience from one that takes six years.
The UZSE composite index (UCI) at each month end
Index, points
The arithmetic of losses
Losses and gains are not symmetric. After a fall, you need a larger percentage gain to get back to where you were, because the gain applies to a smaller amount.
After a 10% loss you need an 11% gain to recover.
After a 20% loss you need 25%.
After a 30% loss you need about 43%.
After a 50% loss you need 100%.
After a 75% loss you need 300%.
The formula is simple: the gain needed is the loss divided by what is left. After a 50% loss, 50 ÷ 50 = 100%. This is why limiting large losses matters so much over a lifetime of investing, and why the size of a single position deserves attention. See position sizing.
Why thin trading can hide risk
Volatility and drawdown are calculated from prices. On the Tashkent Stock Exchange (UZSE), many shares do not trade every day. When a share has no trade, its last price simply stays on the screen. That creates two illusions.
Smooth-looking prices. A share that trades once a week shows long flat stretches followed by jumps. Its measured volatility can look low because most days show no change at all, even though the real price at which you could sell may have moved a lot.
Hidden drawdowns. If no one trades during a bad period, the chart does not show how low a seller would really have had to go. The first trade after a long pause can reveal a large move all at once.
For thinly traded shares, look at the number of days with trades and the volume before trusting any risk figure. The liquidity risk guide shows what to check.
Portfolio risk is not the sum of its parts
A portfolio of several investments usually swings less than its parts, because they do not all fall at the same time. That is the idea behind diversification. The effect is weaker when holdings depend on the same driver, such as several banks, or several companies whose prices are set by the same regulator. In a broad market fall, many shares drop together and diversification between them helps less than in calm times, while deposits and short government bonds often behave differently. Diversification and risk explains the idea in more detail.
Using these measures in practice
Look at the worst case first. Before you buy, check the largest fall in the investment's history that you can see. Ask whether you could hold on through a fall of that size in your own portfolio.
Check the recovery time. A long recovery matters if you may need the money within that time.
Compare like with like. Compare volatility and drawdown over the same period and on the same data frequency, daily with daily and monthly with monthly.
Adjust for liquidity. For shares that trade rarely, assume the real risk is higher than the numbers show.
Match risk to your horizon. Money for next year should not sit in something that can fall 40% and take years to recover.
Finmind's public stocks pages show each UZSE share's price history, so you can see its past falls and recoveries yourself. The paid Risk feature calculates volatility, value at risk, maximum drawdown, beta and concentration for your own portfolio and labels its methodology.
Frequently asked questions
Not for a long-term investor who does not need to sell. Volatility means the price moves widely in both directions, and shares with higher long-term returns often come with more of it. It becomes a problem when you may need the money during a fall or when the swings lead you to sell in panic.
That depends on your horizon and on how much of a fall you could live with without changing your plans. A useful exercise is to take your portfolio's value, apply a fall of 20%, 30% and 50%, and ask honestly whether you would hold on. The answer points to how much of your money should be in shares.
Because the recovery gain applies to what is left, not to what you started with. If 10,000,000 soʻm falls by half to 5,000,000 soʻm, you need another 5,000,000 soʻm to get back, which is 100% of the smaller amount.
Only with caution. When a share does not trade for days, its price stays unchanged on the screen, which makes the measured volatility look lower than the real risk. Check how often it trades and what volumes change hands before relying on any risk figure.
This article is for education only and is not investment advice. Investing in securities involves risk, including the loss of money you invest.
Key terms in this post
Volatility
How far and how often a price swings up and down. Higher volatility means a bumpier ride, not necessarily a worse investment.
Diversification
Spreading money across different investments, so that one bad result does not sink the whole portfolio.
UZSE composite index (UCI), 2016 to 2026. Source: UZSE index values published on openinfo.uz, the latest point possibly from uzse.uz. The index on the last trading day of each month, and on the latest day read for a month not yet over, as the exchange publishes it; Finmind does not adjust or rebase it. Read by Finmind on Sep 28, 2026.
Show the figures
Date
Index, points
Dec 2016
1,000.88
Dec 2017
999
Dec 2018
854.8
Dec 2019
641.97
Dec 2020
641.4
Dec 2021
1,069.14
Dec 2022
386.49
Dec 2023
703.25
Dec 2024
655.12
Dec 2025
744.07
Sep 25, 2026
1,952.36
The table lists each December and the latest reading; the chart plots every month end and the latest reading.
